California Internet Sales Tax Looming

Amazon is once again threatening to cut off all its affiliates in CA if a new tax rule comes down. Instead of merely having a location in the state to collect taxes, the rule would force Amazon to collect sales tax if there was an affiliate in the state. This shouldn't be the case since Amazon has no presence in California. If Amazon cuts the affiliates in that state, I'm sure quite a few people will lose their jobs.

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"If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon 'Associates Program,'" Misener wrote in the letter, dated February 24.

The letter is the latest move for Amazon in its battle with states over sales tax collection. Cash-strapped states claim online retailers that don't collect taxes are depriving states of revenue and enjoy an unfair competitive advantage over local retailers that must collect taxes. However, the U.S. Supreme Court ruled in 1992 that retailers can't be forced to collect sales tax on out-of-state shipments unless they have offices in those states.

Amazon has no physical presence in California, but some states have enacted laws that require retailers to collect sales tax if they have affiliates based in that state. Affiliates place ads for retailers on their Web sites and get paid when customers make purchases via the ads.